This document summarizes how long-duration workers' compensation claims in Alberta can impact employer premium rates over multiple years through a process called "cost development". Costs from claims are applied to rate calculations for 3 years, but the amount included each year may differ. For example, costs paid in the first year would impact rates in the third year, while costs paid in the second year would impact the second and third years. Additionally, there is a cap on the maximum claim costs that can be included each year, called the Maximum Per Claim Cost, to limit the influence of extremely large claims. This ensures employer rates are impacted over several years by long-duration claims but have an upper limit applied.

1. Long duration claims? Premium results may vary.
Understanding “Cost Development”, and the “MPCC”.
By Russell Vasseur–Director,Analytics – Matrix ConsultingGroup May 13, 2015
Large Employers “feel”claims for 3 years, but “how much” can differ each year.
Last month I covered the basics of Alberta WCB Experience Rating – the math behind employer
discounts and surcharges. We discussed the “rule of threes” for large employers, and that “lag
years” exist between claimcosts and pricing impacts. Let’s take a closer look at the process.
Yes, certain costs from each claim are used to set Large Employer
rates for 3 years, but cost amounts can be different for each year,
and can also be capped, based on employer payroll and industry.
The process that allows a claim to influence rates by different amounts each year is called
Cost Development. To see how this works, let’s compare two claims, both from 2011:
Worker A strained her ankle on July 7, 2011. She returned to work soon after on
modified duties, and the strain resolved after seven weeks, with a return to full duties.
Costs on the claim totaled $1,104, and the claimwas closed on August 30, 2011.
Worker B sustained a severe injury on Dec. 28, 2011, that required multiple surgeries,
with prolonged rehabilitation. He eventually returned to full time work in 2014, when
the claim was closed, with costs of $214,538. Note: as the day of accident was only a
few days before the end of 2011, no costs were paid by the WCB until January of 2012.
Both claims had a good outcome, but with very different costs and durations. Both exceeded
$1,000 in costs, so both claims will influence premium rates, but by how much?
Cost Development provides part of the answer, which dictates that costs used from 2011
claims can impact rates in 2013, 2014, and/or 2015, depending on when these costs were paid
by the WCB. Costs from 2011 claims that were paid in 2011 will be used for setting rates in
2013, 2014, and 2015. Alternatively, costs paid in 2012 on those 2011 claims will be used for
2014 and 2015 only, and costs paid in 2013 on those 2011 claims will be used only for 2015
pricing. Notice the lag years between when costs were paid, and when rates were impacted.
Any costs paid after 2013 on 2011 claims will not influence discounts or surcharges. Even so,
longer duration claims (such as for Worker B), with costs rising over three years, can have a
bigger impact over time, than short duration claims (such as for Worker A).
Increased rates over time, from longer duration claims, is cost development at work. As
“costs continue to develop” over three years, the impact on your rates can grow as well.

2. Applying cost development rules gives the following results for Workers A and B:
Worker A – Costs paid, per Year vs. Costs included in pricing, per Year
Costs paid in 2011: $1,104 Costs included in 2013 pricing: $1,104
Costs paid in 2012: $0 Costs included in 2014 pricing: $1,104 + $0
Costs paid in 2013: $0 Costs included in 2015 pricing: $1,104 + $0 + $0
While 2014 and 2015 can include costs paid after 2011, there were none for Worker A (no cost
development occurred), so the costs included for each year (2013, 2014, and 2015) are equal.
Worker B – Costs paid, per Year vs. Costs included in pricing, per Year
Costs paid in 2011: $0 Costs included in 2013 pricing: $0
Costs paid in 2012: $82,781 Costs included in 2014 pricing: $0 + $82,781
Costs paid in 2013: $76,503 Costs included in 2015 pricing: $95,300
Cost development has occurred above. However, why are $0 costs included in 2013 pricing?
This is because the claimoccurred late in 2011, and the first WCB payment was not until 2012.
2013 pricing excludes costs paid after 2011, so “timing is everything” in this case.
For 2014 pricing, all costs paid in 2011 ($0) and 2012 ($82,781) are included, which is $82,781.
However, costs used for 2015 pricing ($95,300) don’t match costs paid by the WCB from 2011
through 2013 ($0 + $82,781 + $76,503 = $159,284). The overall costs on the claim have now
reached the maximum costs that the Alberta WCB allows for any one claim to influence
discounts and surcharges. The maximum can change each year, and for 2015 is $95,300.
NOTE: Only the largest employers have a 2015 maximum of $95,300. Other large employers
will have smaller caps, based on their specific payroll and industry rates. This cap, which is set
each year for all employers, is called the Maximum Per Claim Cost – or “MPCC”. Employers
can find their specific MPCC on their Employer Premium Rate Statements (at the top of Page 2).
What happens to premium rates when claims continue far intothe future?
The claimfor Worker B lasted until 2014, at a total cost of $214,538. Some claims can
go much longer, with much higher costs. Fortunately, your exposure to these claims is
limited to costs paid in the first 3 calendar years, and only up to your specific MPCC.
You can now model premium impacts even more accurately with my WCB Rate & Premium
Calculator, by using cost development over 3 rate years, and capping costs with your MPCC.
Stay tuned for future WCB articles. Next: Using the new WCB Rate & Premium Calculator